Everyone’s favorite e-commerce retailer Amazon.com, Inc. (NASDAQ:AMZN) is doing something that AMZN stock investors are unaccustomed to seeing. Since the beginning of June, shares have dropped nearly 3%. After only spending brief interludes above the psychologically important $1,000 level, the unbreakable company suddenly seems vulnerable.
Should Amazon stock buyers push the panic button?
To answer that question, I first must give credit where credit is due. More than a month ago, InvestorPlace feature writer James Brumley warned that AMZN stock was due for a correction. Regarding Amazon hitting four-digits, Brumley wrote, “With the feat being accomplished, there’s no justifiable ‘second act’ that’s likely to carry AMZN stock meaningfully higher without a significant pullback unfurling first.”
He further emphasized the psychology of “big, round” numbers. After achieving a monumental milestone, traders become bored. Without a particularly interesting catalyst to push Amazon stock forward, buyers simply sell out at a very logical price point.
And like clockwork, shares are taking a modest-sized beating. That’s part of the reason why Brumley is a feature writer and I am not.
But joking aside, I think most people believed that Amazon stock would pull back. Therefore, volatility magnitude is the real question. Here, the evidence suggests that the online retailing giant still has significant upside growth potential after this correction fades.
Amazon Upbeat in a Downbeat Market
When we discuss AMZN stock, and especially from a bearish angle, we have to acknowledge the copycat competition. For instance, Wal-Mart Stores Inc (NYSE:WMT) has made it a point to directly attack Amazon through its own online channels. That triggered key rival Target Corporation (NYSE:TGT) to do exactly the same thing.
Walmart has obviously enjoyed far more success with its e-commerce endeavors, with WMT shares up 8.8% year-to-date. In sharp contrast, Target incurred abysmal performances. Unsurprisingly, TGT is down nearly 28% YTD.
But the biggest takeaway from this big-box competition is that AMZN stock remains the king of e-commerce by a country mile. No one has yet found the secret sauce to challenge Amazon’s unprecedented dominance, though competitors desperately spend money trying. As a result, AMZN shares are up an astonishing 28%.
Another important factor to consider is that Amazon stock is the only investment that’s winning in retail. According to the U.S. Census Bureau, total retail sales excluding food services is flat since the beginning of this year.
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The trend is not at all encouraging particularly because we’ve seen better results in the recent past. For instance, 2016 retail sales between January through May increased 1.6%. In 2015, sales jumped more than 2%. Prior to that in 2014, consumers were especially confident, driving sales growth to 3.7%.
Without getting political, actual consumer confidence appears more robust during the Obama administration than under President Trump. Despite this obvious headwind, AMZN stock continues to make productive strides in the markets. And if Amazon is this powerful during a bear cycle, imagine what it could do in a bull cycle!
AMZN Stock Follows Its Own Rules
Unless the e-commerce giant embroils itself in an unforgivable controversy, I’m sticking with CEO Jeff Bezos and company. Only a handful of other organizations, like Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) or Facebook Inc (NASDAQ:FB), have achieved paradigm-shattering success.
Indeed, AMZN is such a freak of nature that its taking on the grocery industry, a sector notorious for razor-thin margins. Debates rage back and forth regarding their wisdom in securing Whole Foods Market, Inc. (NASDAQ:WFM). But I think that analysts sometimes focus too much on the granularity, and not enough on the bigger picture. In this case, Amazon can get away with it because they can.
That simplistic argument more than anything is what investors should focus on. If the retailing behemoth had any doubts about what it could accomplish in groceries, then it wouldn’t go through with the deal. The fact that management is showing no concern in the face of weak retail markets suggests either hubris or confidence.
Given the enormous track record of Amazon stock, I don’t have the guts to bet against it. I’m sure that traders will take profits off the table because that’s what they do. However, I’m even more sure that genuine investors will see the long-term potential of AMZN.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
